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Save on Taxes: Convert Your Private Foundation to a Donor-Advised Fund

A Donor-Advised Fund (DAF) is one solution for an individual who established a private foundation, but has been overburdened by administrative costs and tasks. In Blackman Kallick's experience, private foundations with less than $2 million of assets can sometimes achieve cost savings and reduce administrative burden by converting to a DAF. Examples of the costs and tasks incurred by private foundations that are not required in a DAF include filing IRS Form 990-PF and annual excise tax based on investment income.

Advantages of DAF are as follows:

• Less administrative cost
• No federal excise tax
• Accepts same type of assets as private foundations: cash, publicly traded securities, mutual fund shares, publicly traded bonds, cash value of a life insurance policy, IRA assets, real estate, etc. (Some DAFs may not accept assets other than cash and publicly traded securities.)
• Ability to recommend grants anonymously
• Do not have to put up with the bureaucracy of state government
• Higher tax deduction for contributions:

Individual Charitable Deduction Limitations	Donor-Advised Fund (DAF)	Private Foundation
Cash	50% of AGI	30% of AGI
Securities (other appreciated assets)	30% of AGI	20% of AGI

Disadvantages of DAF are as follows:

• A DAF must distribute to 501(c)(3) organizations. A private foundation can give to a wider range of charitable causes.
• A DAF might be more restricted in selection of investments

Steps for converting your private foundation to a DAF:

• Step 1: Your private foundation must distribute all of its net assets to one or more tax-exempt organizations that have been in existence for at least five years. All expenses of the private foundation are the responsibility of the private foundation and must be accounted for prior to distribution of the assets.
• Step 2: File a final IRS Form 990-PF (and related state filings) for the taxable year in which the final distribution was made.
• Step 3: Withdraw from states. Each state has different withdrawal requirements. In Illinois, you would need to file articles of dissolution and a written plan for the dissolution.

Some DAFs will assist you in the conversion process.

If you are interested in converting assets from a private foundation to a DAF, please contact Craig Maksymiak at 312-980-2977, Inyoung Choi at 312-980-3283 or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.